1) Make Increased Down Payment: Today, more lenders are no longer offering loans that exceed 90 percent of the appraised value of the home. So, if you want to buy a home, you should expect to put down at least 10 percent of the purchase price to get a reasonable mortgage.
2) Provide Full Documentation: Expect to submit full documentation of income and cash you have in the bank with your mortgage application. These requirements will include three months of pay statements and at least two years of tax returns. You'll also need to provide at least three months of bank account statements that shows that the down payment has been in your bank account for at least that long.
3) Increase Credit Score: It is now more important than ever that you review your credit score and take steps to improve it before you apply for a mortgage. According to some mortgage brokers, when loose mortgage loan requirements were the norm, they could almost always find a loan for folks with credit scores in the low 600s. Now, many are reporting that credit scores need to be at least above 680, or even 700 to make a loan application work. With the median credit score standing at about 720, this doesn't seem to be a large problem, until you consider that over 42 percent of folks have credit scores below 700.
4) Avoid "Jumbos": The interest rates have risen significantly on the upper-end of the mortgage market. Rates for the so-called jumbo mortgages - those that exceed the $417,000 amount that is eligible for purchase and guarantee by mortgage institutions Fannie Mae and Freddie Mac - are almost two percentage points higher than rates for loans below this limit. That means that the monthly payment for a $418,000 mortgage versus one just $1,000 lower, or for $417,000, would differ by over $500 per month! Borrowers who need to borrow over this limit should consider two loans - one at the $417,000 limit, and another, smaller loan, such as a home equity loan on which the interest rate is linked to the prime lending rate. This advice, of course, assumes that the total of both loans is affordable and does not exceed 80 percent of the appraised value of the home.
5) Shop Several Mortgage Brokers: With the rapidly changing mortgage marketplace, the options available can vary widely from one mortgage broker to the next. There is clearly a shakeout in the market, and only those with strong backing of large lenders or with good contracts with Fannie Mae or Freddie Mac will have the best options during this period of change and uncertainty.
Finally, while no one in the industry can say when conditions will improve, all agree that the fast and loose mortgage products offered at the beginning of this decade are not likely to be seen again for a long time.